Sino-US Tensions Resurface

Offshore yuan weakened on Tuesday, USD/CNH driven higher a stronger greenback post-CPI in the US. The pair is brushing up against yesterday's high, last at 6.4815, and continued to move in its recent range having oscillated between 6.45 and 6.50 since mid-June.

• Sino-US tensions have resurfaced, recent actions by the Biden administration allude to a firm stance against China. Actions include new import controls for the Xinjiang region, excluding Beijing from digital trade talks and a warning to American businesses in Hong Kong. Officials in the Biden administration say that the new policies are reacting to China, but observers have expressed surprised at indications Biden is set to continue trends from during the Trump administration. On a related note Biden is set to nominate Alan Estevez to lead the Bureau of Industry and Security that oversees export control of technology and is a key position in relations with China.
• Markets continue to digest comments from the head of PBOC's monetary policy department yesterday, Sun said that the PBOC will provide an appropriate monetary policy environment in the second half of the year, and that policy will be flexible reasonable and appropriate. Sun also said that the rise in PPI was transitory and external influences will fall, he expects a moderation of PPI in Q4 and beyond.
• Elsewhere, markets await GDP figures later in the week. The PBOC took dovish steps to cut the RRR ratio despite previous warnings of excess leverage. Export data was robust yesterday, but the commerce ministry has outlined measures to provide more support for foreign trade. The seemingly contradictory narrative could be illuminated by GDP data.